Twitter: Not Your New Broker

By Siri Yellamraju, Spring 2016 Student Intern

Twitter is a great place to get updates about Kim Kardashian’s latest drama. Facebook is the best place to catch up on your family’s drama. Instagram is where you follow that cool friend you live vicariously through on her exotic trips. These are not, however, the places to find sound investment advice.

Although Twitter, Snapchat and Facebook have become frontrunners in reporting news, they are not the best mediums to solely rely on for investment advice. Many prominent and prestigious news companies use Twitter to relay information to the public. The problem and benefit of social media is, however, that anyone and everyone has their own platform.

This is why the SEC has advised investors to be aware and wary of fraudsters that may try to manipulate stock prices by spreading false information through social media.

Recently, the SEC accused an individual of manipulating the share prices of two publicly traded companies by tweeting false and misleading information. As organizations turn increasingly to Twitter to convey information to the public about their financial performance, people may be inclined to overly rely on social media for their investment advice and decisions. After all, many of these companies market heavily online and interact with their customers through Twitter, Facebook, Snapchat and Instagram. Businesses are become extremely transparent through their operations on Social Media.

The SEC suggests the following tips for investors to keep themselves safe:

  • Be aware of “Pump and Dump Schemes.”

This is when fraudsters spread positive information about a stock to “pump” up the price, create a hype and then quickly “dump” all of their shares right before the frenzy ends so that they make a quick buck. Usually, right after the fraudsters sell their shares, the price begins to drop and they push people to sell their shares as well.

  • Be wary of the source of the information.

Telltale signs of a fraudster on social media include: limited history of posts, pressure to buy or sell RIGHT NOW, unsolicited investment information and offers and unlicensed sellers. Verify the email address, account name, profile and dig through their history a little bit. Look for their website and search their name on SEC filings and on Google to see if anything is suspicious. Twitter and Facebook provide blue verification badges to show that accounts are authentic.

  • Get your information from multiple sources. Do not rely solely on social media, or even one social media site.

Social media is a great asset. Not only can your family like random pictures of you from eight years ago, but you can get instant updates from some of your favorite celebrities, companies and even the government. When we live in such a connected world and have this great asset, it would be naive to NOT rely on it at all. While the internet and social media are a great tool, they can be a great weapon as well and should be viewed cautiously.